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Profitability, success probabilities, and incentives for cooperative R&D

Author

Listed:
  • Wen-chung Guo

    (Department of Economics, National Taipei University)

Abstract

As is widely conjectured, duopolists form a cost-sharing cooperative R&D alliance to develop a product - regardless of the probability of research success is either very high or very low. This study establishes that most low probabilities of research success cannot induce a financially successful cooperative R&D alliance. Incorporating the constraints in non-negative expected profits eliminates more than 95% probability of the parameter space where the probability of success is lower than 0.5. Our results further demonstrate that non-negative expected profits are attainable when the monopoly profit is not large in relation to duopoly profits, the fixed cost of R&D investment is low and the demand is large.

Suggested Citation

  • Wen-chung Guo, 2011. "Profitability, success probabilities, and incentives for cooperative R&D," Economics Bulletin, AccessEcon, vol. 31(1), pages 309-314.
    • Handle: RePEc:ebl:ecbull:eb-10-00697
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    More about this item

    Keywords

    Cooperative R&D; uncertainty; profitability;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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